Welcome to Thoughts on the Market.
I'm Amy Gower, Morgan Stanley's metals and mining commodity strategist.
Today we're talking about gold, a metal that's more than just a safe haven, and what it tells us about the global economy and markets right now.
It's Wednesday, September 10th at 3pm in London.
Gold has always been the go-to asset in times of uncertainty.
But in 2025, its role is evolving.
Investors are watching gold not just as a hedge against inflation, but as a barometer for everything from central bank policy to geopolitical risk.
When gold prices move, it's often a sign that something big is happening beneath the surface.
Gold and silver have both already clocked up hefty year-to-date gains of 39% and 42% respectively.
So what's been driving this rally?
Well, several factors stand out.
For one.
Central banks are on track for another year of strong buying, with gold now representing a bigger share of central bank reserves than treasuries for the first time since 1996.
This is a strong vote of confidence in gold's long-term value.
Also, gold-backed exchange-traded funds, or ETFs, saw inflows of 5 billion in August alone, with the year-to-date inflows the highest on record outside of 2020, signalling renewed interest from institutional investors too.
With inflation still above target in many major economies, gold's appeal has been surprisingly resilient, despite being a non-yielding asset.
And investors are betting that central banks may soon have to cut rates, which could further boost gold prices.
In fact, from here we see around 5 further upside to gold by year end to 3800 an ounce, which would be a new all-time high.
But there is one important wrinkle to consider.
Keep in mind that, while precious metals, especially gold, are primarily seen as a hedge and safe haven in times of macro uncertainty, jewelry is a big chunk of the overall precious metals market.
It accounts for 40% of gold demand and 34% of silver demand.
And right now, how jewellery demand would evolve remains an unknown.
In fact, jewellery demand is already showing signs of weakness.
Second quarter, gold jewellery demand was the worst since the third quarter of 2020, as consumers reacted to high prices.
Nonetheless, gold was able to hold on to its January to April gains and silver continued to grind higher, supported by strong demand from the solar industry as well.
However, until recently, the two metals were lacking catalysts for further gains.
Now though, this is changing, with both gold and silver poised to benefit from expected Fed rate cuts.
Our economists expect the Fed to cut rates at the September meeting for the first time since December 2024.
And if we look back to the 1990s, on average, gold and silver prices have risen 6 and 4 respectively in the 60 days following the start of a Fed rate-cutting cycle, as lower yields make it easier for non-yielding assets to compete.
Our FX strategists also expect further dollar weakness, which should ease some of the price pressures for holders of non-dollar currencies, while India's imports of gold and silver already showed signs of improvement in July.
The country is looking also to reform its goods and services tax, which could free up purchasing power for gold and silver ahead of festival and wedding season.
Gold does tend to outperform after Fed rate cuts and we would keep the preference for gold over silver, but our outlook for both metals remains positive.
Of course, precious metals are not risk-free.
Prices can be volatile, and if central banks surprise the market with higher interest rates, gold in particular could lose some of its luster.
But for now, both gold and silver should continue to shine.
Thanks for listening.
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